Fitch downgraded five Portuguese banks and their subsidiaries today (Monday) and cited a Portuguese sovereign debt downgrade last Thursday as the reason. All the long term ratings remain on CreditWatch with negative implications.

Fitch believes another sovereign downgrade could occur as early as this week and noted that Portuguese banks face an increasingly difficult operating environment.

The rating agency also anticipated a relapse into recession in 2011 as Portugal attempts to correct fiscal and external imbalances.

“Our rating actions today reflect the direct impact of our two notch downgrade of the Republic of Portugal (BBB/Watch Neg/A-2) on those Portuguese banks that we previously rated at the same level or higher than the sovereign, namely Santander Totta, CGD, BES, and BPI,” said S&P credit analyst Elena Iparraguirre.

“They also are based on the deterioration we anticipate of the financial profiles of all of the rated Portuguese banks as a result of what we view as an increasingly difficult economic, financial, and operating environment in Portugal.”

Banco Santander Totta was cut from A to BBB, Caixa Geral de Depósitos from A- to BBB, Banco Espírito Santo from A- to BBB, Banco BPI from A- to BBB and Banco Comercial Portugûes (Millennium bcp) from BBB+ to BBB-.